Summary
- Company needed capital to commercialise a new technology
- Tough to separate new tech from the parent company
- Accountants valued spinoff at 4x EBITDA ($US8m)
- EverEdge analysis proved its value was 7x ($US45m)
- Client successfully raised $US15m for spinoff venture
Client Information
A 40-year-old manufacturing company generating a relatively small revenue, developed a clever new technology that it hoped to commercialise through a spinoff business.
The Problem
The client wanted to create a new spinoff company that dealt strictly with the technology as a standalone service. But as valuation analysts tried to assess the value of this new technology, they struggled to separate it from the track record of the parent company.
The client wanted to do a capital raise to fund the spinoff, and it needed a second opinion after the valuers judged the venture to be worth only 4x EBITDA (earnings before interest, taxes, depreciation and amortisation) – a figure based on the parent company’s balance sheet.
The client was adamant its spinoff business was worth far more than $8 million.
The Solution
EverEdge was then engaged to audit the intangible assets of the spinoff business. The assets were correctly identified, codified and protected. To prepare for a capital raise, EverEdge valued the new company at $US45 million pre-money (how much a startup is worth before any investment). This was a significantly higher valuation than given by the initial assessors and allowed the client to approach investors with much deeper pockets.
Results & Benefits
EverEdge’s assessment of the spinoff not only focused on financial metrics but also demonstrated the potential future value of its unique assets. EverEdge identified investors, helped the company to articulate its intangible value and the client successfully raised $US15 million to fund its sister company venture.
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